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Staying Competitive: CapEx improvements

ORLANDO—During the depths of the recent industry downturn from 2009-2010, many brands understood that hotel owners were struggling to generate revenue and keep current with their debt payments. Consequently, the brands wisely eased up on deadlines for owners to make often-costly CapEx investments in their properties. 

Similarly, the brands may have been a bit more relaxed when it came to properties changing owners, thereby triggering a Property Improvement Plan (PIP). PIPs, more often than not, require an owner to make an even greater outlay of CapEx investment dollars in order to bring the property up to current brand standards.

Now that the downturn is in the past and a nascent rebound is underway, are the brands taking a more aggressive stance when it comes to owners implementing expensive new brand standards? Are PIPs becoming more elaborate and detailed?

These questions were front and center at the 2012 Annual Hotel Business Management Companies Roundtable entitled “Managing Expectations: From Construction to Conversion,” held in March at the DoubleTree by Hilton Orlando at Sea World Hotel. Hosted by Hilton Worldwide’s DoubleTree brand, the Roundtable brought together executives from leading management companies, as well as Hilton and other industry leaders.


Proven track record 


Owners increasingly are looking for management companies that have a track record overseeing CapEx programs, noted Joseph Moffa, president of Riley Hotel Group. “When it comes to the PIPs or to implementing new standards, owners want operators that can work successfully with the brands. That’s what we do. Owners are starting to see that choosing the right management company is about more than just booking room nights,” he said.

Owners don’t necessarily understand the requirements set by the brand or what a brand’s rationale is for making a change, John Pharr, president of Strand Development Co., LLC, told the Roundtable. “You may actually have to bring some brand people in to meet with the owners. Once the owners start participating in the brand sessions, they get an appreciation for what’s going on,” he explained.

Representing the brand perspective, Rob Palleschi, global head of DoubleTree by Hilton, was asked how DoubleTree deals with management companies and owners that are responsible for putting new brand standards in place. “Within Hilton Worldwide, each brand has an owner advisory committee. This is the forum for discussing these kinds of issues,” he explained.

Palleschi noted that he and his team find the sessions extremely helpful because they get direct feedback from owners and owner/managers on what the market is telling them. “Ultimately, when it comes to upgrades and improved brand standards, we want to go where the customer wants us to go. We like to think we listen to what we’re being told and then make sound business decisions accordingly,” he said.

Palleschi recalled when the downturn first got serious in 2008 and Hilton Worldwide’s decision at that time. “The company immediately jumped on it and pushed back on a lot of the capital projects, including the rollout of upgraded beds and televisions,” he said.

At the time, many people thought delaying those rollouts was the wrong step to take, he continued. “But, at that point, it felt like we needed to help our owners and management partners survive.”

James Carroll, president & CEO of Crestline Hotels & Resorts, told the Roundtable that, generally speaking, he couldn’t fault the brands’ performance. “Throughout the past eight years, as we went through both the good times and bad times, the brands’ response has been reasonable,” he remarked. 

But when it comes to CapEx investments, you really need to start with the guest satisfaction scores and quality assurance reports, Carroll pointed out. “If the scores and reports are positive—and the manager has a good reputation, representing an owner with an equally successful track record—I don’t recall a situation where the brand didn’t give you another year or two to implement the change.”

Added Carroll: “Most of the time, service trumps product. So if you’re where you need to be, the brand will back you up.”

Brands want their hotels to have installed the latest brand standards, regardless of cost, for a reason, argued Mark Kucera, president & COO of Presidian Hotels & Resorts. “It’s critical for the brands and the hotels that the product remain competitive. Remaining competitive is important for today, but it’s also essential for the future,” he said.

So if you’re not setting your sights on where your product is going to be down the line, you’re going to be at a disadvantage to your competitor who is spending the capital dollars,” he concluded.

While the 2012 Annual Hotel Business Management Companies Roundtable was hosted by DoubleTree by Hilton, additional sponsor support was provided by Gallagher Real Estate and Hospitality Services, ProfitSword, Pure Solutions, Ferguson, Valley Forge Fabrics and Keurig.